Is severance pay subject to personal income tax in Vietnam?

Is severance pay subject to personal income tax in Vietnam?

1. Question:

I have worked for the company in Vietnam continuously for 9 years and will terminate my contract in June 2022, will the company pay me a severance allowance of 15 million VND. In which, my actual allowance according to the law is 10 million dong. So in this case, do I have to pay personal income tax?

2. Legal basis for personal income tax and solutions:

Pursuant to Point b, Clause 2, Article 2 of Circular 111/2013/TT-BTC of Vietnam Finance Ministry stipulates as follows:

Article 2. Taxable incomes
2. Income from salary, wages
b) Allowances and subsidies, except for the following allowances and benefits:
b.6) Allowance for unexpected difficulties, allowance for labor accidents, occupational diseases, one-time allowance for childbirth or child adoption, maternity benefits, convalescence and rehabilitation benefits post-maternity health benefits, benefits due to working capacity decline, lump-sum retirement benefits, monthly survivorship allowances, severance pay, job loss allowances, unemployment benefits and other benefits according to provisions of the Labor Code and the Law on Social Insurance.
…
In case the allowance or subsidy received is higher than the allowance or subsidy according to the above guidance, the excess must be included in taxable income.”
Thus, in case the employee receives the severance allowance or job loss allowance according to the prescribed level, it is not included in taxable income when calculating personal income tax.

On the contrary, if the severance allowance received by the employee is higher than the level prescribed by the Labor Code 2019, the excess will be subject to PIT.

With respect to calculation of personal income tax with excess allowance amount, in Official Letter 6553/CT-TTHT; Official Letter 70182/CT-TTHT and Official Letter 45749/CT-TTHT provide the following instructions:
- If the Company pays the employee before the termination of the Labor Contract, the Company shall aggregate with the incomes from wages and salaries arising in the period to deduct according to the partial progressive schedule.
- If the Company pays the employee after the termination of the Labor Contract, the payment to the employee is VND 2,000,000 or more, the Company will withhold PIT at the rate of 10% upon payment.

Lawyer Vietnam Law Firm – Vietnamese Lawyers

Related text:

- Regulations on severance pay in Vietnam, Click here